Roche & Cie

French draft Budget 2018: IFI, flat tax, CSG, Housing tax … The announcements

28 Sep 2017

The French Minister of the Economy and Finance, and the person in charge of Public Accounts, have just presented the draft budget law for 2018.
The announced objective is to reduce public spending and restore the purchasing power to the French. Focus on the main thrusts of this project.

Creation of a flat tax

The introduction of a single flat-rate levy, also known as “flat tax”, on all income from capital is included in the draft budget law which was presented on Wednesday 27 September. The single flat-rate dividend will come into effect on 1 January 2018 and is intended to tax 30% of interest, dividends and capital gains on transferable securities.
All income from movable capital subject to the scale of income tax (Household Savings Plan (ELP), life insurance, bank accounts, etc.) will be subject to this levy.
On the other hand, regulated savings products, Livret A and LDD, will not be subject to new taxation. The same applies to the savings plan in action (PEA), which will remain exempt from income tax. ELPs open as from 1 January 2018 will be subject to the flat tax, as well as certain life insurance contracts.

The housing tax is deleted

Housing tax reform will begin with an initial one-third decline for 80% of households subject to tax (approximately 17 million households). This measure has been announced for a long time. However, the reform will only apply over three years, through three successive decreases of one third of the amount of tax. The Ministry of Finance has specified the income ceilings that should not be exceeded in order to benefit from the decrease as of 2018. The threshold is set at € 27,000 of reference tax income for a single person, € 43,000 for a couple and € 49,000 for a couple with a child. If your reference tax income does not exceed these limits, the amount of your residential tax will be reduced by one third in 2018 and one third in 2019, to be reduced to 0 in 2020.

Abolition of the Wealth Tax (ISF)

End of ISF.

As promised by Emmanuel Macron during the presidential campaign, the wealth tax should be deleted in favor of the tax on immovable property (IFI). It tends to target property in order to favor the risk facing the annuity.

The tax on immovable property (IFIs) should enter into force on 1 January 2018. Only the real estate will be subject to this new tax. Securities, bank and financial investments, cash will be excluded.

The contours of the reform are now known: the tax threshold and the progressive scale are retained, as is the 30% abatement on the main residence.
In addition, the executive plans to integrate real estate investment vehicles into the base for calculating the new tax. Therefore, SCPIs and OPCIs would be affected by the IFI.

We explain more on the new wealth tax here

Increase in CSG and decrease in employee contributions

The CSG increases by 1.7 points. This reform, carried out in parallel with a reduction in unemployment and sickness contributions for employees, is supposed to restore purchasing power to the assets.

As a reminder, because pensioners with the most modest incomes are exempt from CSG, more than half of pensioners will not be affected by the reform.

Cabinet Roche & Cie, English speaking accountant in France.
Specialist in Real-Estate and Non-resident taxation.